FHA Loans, Disability Pay, and Proof of Income

October 30, 2012

There are many common questions about FHA home loans, and more than a few uncommon ones. Income verification is one area where FHA loan applicants may experience the need for more information. Consider this type of question:

"I have been approved for an FHA home loan, a closing date has been set...but later I got a message from my loan officer saying that the underwriter requires one more document. I am on Social Security Disability. My underwriter wants a letter from my doctor guaranteeing that my medical condition will not change for the next three years! No doctor can guarantee my health or anyone else's, can the lender suddenly deny my loan?"

Situations like this are more common than one might think, and while it is not our place to make a judgment call on the legality or propriety of a situation such as this, any borrower who feels they are being discriminated against or being asked to do something in violation of the Fair Housing Act should contact the FHA immediately by calling 1-800 CALL FHA. It's always a good move to request some advice from an FHA rep with issues such as these.

Why would such a scenario possibly be in violation of Fair Housing Act laws or other regulations? Consider this press release issued by the FHA/HUD official site in February 2012, which states:

"The U.S. Department of Housing and Urban Development (HUD) today announced that it is charging Bank of America with discriminating against homebuyers with disabilities. HUD alleges that Bank of America imposed unnecessary and burdensome requirements on borrowers who relied on disability income to qualify for their home loans and required some disabled borrowers to provide physician statements to qualify for home mortgage loans." (Emphasis ours.)

The press release continues;

"Holding homebuyers with disabilities to a higher standard just because they rely on disability payments as a source of income is against the law," said John Trasviña, HUD Assistant Secretary for Fair Housing and Equal Opportunity. "Mortgage companies may verify income and have eligibility standards but they may not single out homebuyers with disabilities to delay or deny financing when they are otherwise eligible."

Again, it's not our place to say whether the circumstances described in our "frequently asked question" scenario mentioned above do or do not violate Fair Housing Act rules. But anyone who finds themselves in a situation where they believe they are being asked to provide additional financial qualifications due to their disability status has the right to call the FHA to get advice and guidance about their rights and responsibilities.

Consider the last paragraph in the FHA/HUD press release, which states, "According to HUD's charge, Bank of America allegedly asked some borrowers for proof of their disabilities and sought evidence of the continuation of their Social Security income before approving loans, after first denying them. The matter will now be handled by the Department of Justice. FHEO and its partners in the Fair Housing Assistance Program investigate approximately 10,000 housing discrimination complaints annually."

If you believe you are the victim of housing discrimination, contact HUD at 1-800-669-9777 (voice), (800) 927-9275 (TTY).